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The Fifth District economy continued
to expand at a moderate pace in March and early April, as stronger growth in
manufacturing activity was tempered by slower growth in the services sector.
Manufacturers posted strong gains in shipments and new orders in March,
suggesting an end to the prolonged downturn in the sector. In contrast,
services businesses and retailers reported a slowdown in demand and only a
limited expansion of payrolls. In commercial real estate, office and industrial
leasing was flat in most areas, although a pickup in retail leasing occurred in
the Washington, D.C. area. Home prices rose and sales remained exceptionally
strong in Maryland and Virginia, but weakened somewhat in the Carolinas. In the
financial sector, residential mortgage lending was boosted by a dip in mortgage
interest rates in February and March and contacts noted more interest in
business borrowing to finance capital spending. District labor markets
exhibited modest job gains in the manufacturing and services sectors. Some upward
price pressures were in evidence as retailers and manufacturers reported that
they were attempting to pass through some higher costs of raw materials. In
agriculture, planting and crop development was hampered in some areas by colder
than normal weather and dry soil conditions.
Retail
Retail sales growth moderated
somewhat in the weeks since our last report. Contacts at department stores in Annapolis and Columbia, Md., reported only modest sales growth, while those in central North Carolina and Virginia Beach, Va., said sales growth remained constant. Automobile
dealers in Virginia and the Carolinas generally reported constant or higher
sales growth. Building and garden supply stores said sales remained on pace,
but contacts noted that higher prices for lumber and steel were leading them to
raise retail prices in some cases. A few retail businesses said they had hired
additional employees and average wages moved moderately higher. Looking ahead,
most contacts remained optimistic regarding the prospects for retail sales.
However, a contact said the Richmond metropolitan area was oversaturated with
retail businesses as a result of two regional malls opening six months ago; he
expected a retail shakeout over the next year.
Services
On balance, customer demand at
services firms was nearly flat in March and early April. Medical and surgical
services providers in central North Carolina reported a slight pickup in
demand, but those in central and northern Virginia said demand declined. A
freight service firm in North Carolina also reported higher demand, while
another in Washington, D.C., said business was off. Fitness centers in Washington, D.C., and Charlotte, N.C., reported that demand for their services increased,
particularly for "add-ons" such as personal trainers. A caterer in Washington, D.C., told us business was steady over recent weeks, but business clients
were requesting fewer galas as a result of smaller budgets.
Manufacturing
District manufacturing activity
expanded at a solid pace in March as shipments and new orders strengthened
appreciably in the food, paper, printing, and primary metal industries. A
Maryland-based producer of electrical equipment told us that new orders from Japan and China continued to be unusually strong. Several plastics manufacturers said that
business was looking a little better but they were not convinced that the
increase in activity would continue. Manufacturing employment edged slightly
higher while the average workweek picked up considerably. Raw material prices continued
to move upward; a textile manufacturer in North Carolina said Chinese firms
were buying up raw materials--cotton, paper, steel and petroleum--and bidding
prices higher. A primary metal manufacturer in Maryland expressed a similar
sentiment, noting that his company would be unable to maintain its existing
prices because sharp increases in prices for stainless steel and copper-based
alloys had raised their costs.
Finance
District bankers reported moderately
higher growth in loan demand in recent weeks. Demand for commercial lending was
reportedly stimulated by a general pickup in the economy; one District lender
described business clients as finally "coming out of their shells"
and borrowing to finance capital spending. A commercial lender in Charlottesville, Va., said that his office had been busy, in part because he was "pounding
the pavement" for loans. A contact in Richmond, Va., reported stronger
lending activity but noted that her bank had been "pricing thinner"
to gain more business. Residential mortgage lending was bolstered by a drop in
mortgage interest rates in February and March. One District banker, however,
noted that mortgage lending was starting to ease again as mortgage interest
rate rates edged upward in April.
Real Estate
Realtors continued to report
generally strong housing markets in the Fifth District. The Washington, D.C., market remained very active; condominiums and co-op properties were selling
particularly well, according to an agent there. Strength was also reported in Odenton, Md., where homebuyers were said to be "fighting over houses." A realtor
in Virginia Beach said sales were very good and that buyers were "overpaying
for properties," while a Richmond, Va., contact said his office registered
a record number of sales in March. In contrast, a few markets in the Carolinas softened--an agent in Charlotte, N.C., said home sales were down from a year ago,
while an agent in Greensville, S.C., reported "some slowness" in
February. Home prices in most areas of the District continued to climb.
Fifth District commercial realtors
reported little change in leasing activity during recent weeks. Realtors in the
Washington, D.C., metropolitan area remained very busy, while contacts in Raleigh, N.C., and Baltimore, Md., characterized leasing activity as "status quo."
By sector, office and industrial leasing was generally flat, but retail leasing
was particularly strong, especially in the Washington, D.C., market. Another
bright spot was Greenville, S.C., where contacts were "very encouraged"
by increased activity in all market categories during the last ninety days.
Office and retail rents firmed up in the Washington, D.C., metro area and
realtors in all markets reported that landlord concessions were slowing.
Tourism
Tourist activity advanced again in
March and early April. Mountain resorts in Virginia and West Virginia concluded
a good ski season and contacts anticipated strong spring and summer bookings.
Coastal tourism also strengthened. A contact in Myrtle Beach, S.C., said that
bookings and walk-up traffic boosted business there in recent weeks. In Washington, D.C., officials said that tourism this spring was returning to pre-September
11th levels.
Temporary Employment
Contacts at temporary employment
agencies in the District generally reported modest increases in demand for
temporary workers since our last report. Agents expected the economy to firm
further in coming months and anticipated the demand for workers to strengthen
as a result. Clerks, customer service agents, and IT personnel were among the
temporary workers in greatest demand.
Agriculture
Colder-than-normal temperatures in
March and early April slowed planting and crop development in many areas of the
District. Cold weather delayed tobacco transplanting in North Carolina and
hampered cotton planting in South Carolina. Despite some rain in recent weeks,
dry soil conditions persisted in many areas in Virginia and the Carolinas. Small grain producers in North Carolina said many fields have had less than an
inch of rain since topdressing was applied.
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